But Dr Martin's facing another challenge because his home surgery consists of 30% of the area of his home, and he's been claiming a home office deduction on it for years. Must he pay exit Vat to SARS?
The answer's yes. If you use part of your home for a Vat-registered business, you have an exit Vat liability! But if it's your private home, or a house you let for residential purposes, you don't have to by exit Vat on it.
+++ SARS has confirmed that it'll be compulsory for all companies to complete their IT14SD target="_blank" class="contextual_links">IT14SD forms very soon.+++
2 Scenarios where you'll have to pay exit Vat
If you find yourself in a similar situation to Dr Martin, you'll also need to pay exit Vat at these times...
Firstly, even if you operate your business from a private house, and you have claimed a portion of the VAT as relates to your business you'll have to declare exit Vat if you deregister, on the portion you used for the business. In Dr Martin's case, he'll have to work out VAT on 30% of the lowest of cost or open market value of the property x 14/114.
Secondly Dr Martin will have to pay VAT over on all assets and stock he holds on hand.
You declare Vat on the lower of the cost, or the current open market value;
Let's look at this example:
Dr Martin bought the house in 1998 for R342 000, and claimed 30% of the Vat on the purchase price as input tax (30% of R42 000 = R12 600). The market value of the house is now R1 million. In addition, he finds that he owns equipment and some medication whose cost was R150 000 but whose market value is now R75 000.
So Dr Martin now must make 2 Vat calculations:
1. He must declare exit Vat on his house, but on the lower of the cost or the market value, thus:-
R342 000 x 14/114x 30% R12 600 output tax
2. He must declare Vat on the stock and assets on hand, thus:-
R75 000 x14/114 R9210.52 output tax
Total exit Vat payable R21810.52
+++ Getting your VAT refund from SARS just got harder…+++
If you have similar Vat related questions, visit our new Accountancy and Tax Club. It's a peer-to-peer forum where you can ask and answer Vat question, and spend some time in cyber space with like- minded business people.